Commercial Bank International Portfolio Of Product Design And Case Analysis

Since2010, along with a new round of RMB exchange rate formation mechanism reform, the RMB exchange rate and foreign currency interest rate market-oriented pricing, arbitrage needs of enterprises and the outer tube policy restrictions, the traditional sense of the competition demands of the commercial banking operations settled three tools (wire transfer, collection, letters of credit) and trading finance products are artificially more closely linked together. These come to a wide variety of international business combination product. They are often flexible to use the financial engineering techniques, combined with the territory, outside of the foreign currency market exchange rates, interest rates and market opportunities, basing on the international settlement and trade finance busines’s as the basic carrier. On one hand, it provides enterprises with no risk financial gain. On the other hand, it provides the commercial banks with international business receipt and payment of the foreign exchange trading volume. What’s more, it pulls on the public debt scale and increases the income of intermediary business. so, once launched, it has been widely welcomed both banks and enterprises.The financial derivative products are still subject to regulatory bodies’ stringent strict restrictions. Those products designed to arbitrage are often questioned. So it is necessary to sort out the common derivative products. The arbitrage process often involves a number of financial products, even more financial markets. Corporation financial officers are often lack of model available to judge the investment value.Taking into accounts that the international business portfolio products have embedded foreign currency derivative products, this essay first introduces the combination of product design derivatives (forward foreign exchange business, non-deliverable forward foreign exchange, RMB and foreign currency swap business, RMB foreign currency swaps, the definition of RMB business of foreign currency options), the transaction process, guarantee transactions, provide management, submissions required delivery. This helps the corporation financial officers to grasp the risk characteristics. In addition, considering China’s foreign exchange business under current capital account are still executing strict management system, the outer tube policies are sort out to ensure the legal compliance of products. Second, there are many international business combination products in the practice of commercial banks, although the means and targets are different, the construction principles and design ideas are interlinked, in order to better understand and master the design of these products, it’s very necessary to discuss the principles of their design ideas.Therefore, we propose to build principles of building a successful combination of products to meet the following three elements:(1) not additional costs for customers;(2) no violating the existing line, if break the current policy, there should be a lot of arbitrage opportunities, but it does not belong to the scope of this article;(3) commercial banks revenue maximization under the framework of the commercial banks FTP assessment. The goal of product combination is designing to provide enterprises with better financial services. But it should not loss the commercial banks benefits. Taking into account that the commercial banks are commonly using FTP as the internal economic profit assessment, FTP factors are unavoidable; but at the same time, there should not be pure profit’figures comparison. Considering the different degree of importance of the principles, the above three principles of product design constraints showed a decreasing trend. We then from two ideas-"inside and outside the spread arbitrage" and "currency interest rate arbitrage"-to start:"Inside and outside the Spread" is a combination of non-deliverable forwards (NDF) tools with the territory of foreign currency forward contracts, Structure arbitrage combination of the RMB exchange rate arbitrage."Currency interest rate arbitrage" uses the deposit rate, the lending rate and the future exchange rate between the existing imbalance to achieve the target of increasing the value of its assets or decreasing liabilities. The design of such combination products often base on high-interest-bearing assets, Low-interest liabilities and exchange rate risk management tools. The core idea is the use of interest rate parity. Risk-free arbitrage and risk arbitrage can be divided into two major categories. The difference between the two as follows:The former tends to use foreign currency forward contracts to lock future prices, if the forward foreign exchange prices fall into the arbitrage interval, you can easily get risk-free arbitrage. while the latter is often a no-cost option portfolio to the next settlement and sales the exchange price is locked within a certain range. if it’s profitable? on the due date, you need to know the actual spot purchases and sales of foreign exchange rates and the combination of upper and lower limits. The reason for using a risk-free arbitrage mode, on the one hand, is that sometimes the price do not fall forward foreign exchange arbitrage interval. on the other hand, because companies want to take more risks in order to generate more income. And the future spot exchange rate prediction model is the core problem of risk arbitrage portfolio, so this essay establishes the forecasting model for the spot rate. Finally, based on a real case background, we use the group GRACH to model RMB against the U.S. dollar exchange rate fluctuations, thereby establishing the revenue of RMB against the U.S. dollar rate prediction model. And on this basis, we reach the brief analysis on the expected transaction price determined future of the exchange rate of the RMB against the U.S. dollar price sequence and bullish risk reversal option portfolio.The significance of this study is to supplement the domestic international business portfolio product design, deepening the understanding of corporation financial officers of international business arbitrage portfolio products. This study uses Monte Carlo simulation method to propose the exchange rate difference in interest rates arbitrage international business portfolio is expected to investment rate of return model, and through studies, to facilitate corporation finance officers recognizing income risk characteristics of such products, and thus make more rational investment options for such products.